Intel Results Continue to Slide

Intel has reported a net profit of $2.0 billion on sales of $12.81 billion in the second quarter of 2013. The sales revenue was down 5.1 percent on the same quarter a year before while the net profit fell by 29.3 percent on the same basis.

On a quarterly sequential basis sales revenue was up 2 percent while net profit was down 2 percent.

"In my first two months as CEO, I have listened to a wide variety of views about Intel and our industry from customers, employees and my leadership team and I am more confident than ever about our opportunity as a company," said recently appointed CEO Brian Krzanich, in a statement. "We will leave no computing opportunity untapped. To embrace these opportunities, I've made it Intel's highest priority to create the best products for the fast growing ultra-mobile market segment," he added.

Intel said that for the third quarter it expects to achieve sales of between $13 billion and $14 billion, which would represent a sequential growth of between 1.4 and 9.2 percent.

The company said it has reduced its forecast for full-year sales revenue growth to zero, down from a previously forecast low single digit percentage increase.

The company also announced it would reduce its full-year capital spending to $11.0 billion, plus or minus $500 million, down $1.0 billion from prior forecast.

I was surprised by the drop in the capex forecast. With all Intel has going, I think a lot of people hoped it would hold steady or go the other way. It's a big blow to the equipment industry that Intel is taking $1 billion off the table.

Remarkably, Intel shares have been in the same trading range (give or take $5) since the recession began. They're now back at 2009 levels, in the middle of that range. That's dead money for investors and the challenges facing the company are widely known. Still, one has to look at the broader tech sector to gain a full appreciation for that is happening. Here's a tweet this afternoon from Trish Regan over at MarketWatch.com. It's a good question she asks:

"fast growing ultra-mobile market segment": I see the statistics on the growing mobile/tablet market all the time. But, it is becoming very evident in my highly techie family. Both parents have moved exclusively to laptops/smartphones and both teenagers are using tablets. The desktop workhorses in our home/office seem to only be used for gaming now...The importance of this market really can no longer be ignored.

It looks like, its kind of a zero sum game for Intel... If intel wins the 30$ mobile CPU race by competing with ARM in speed, it will lose its 300$ notebook/desktop CPU business as people will have no/less reason to buy a notebook, which makes much higher margins for Intel.

Intel's best option is to compete with ARM only in power consumption, by keeping its mobile CPU performance at the same level as of ARM's topline. Thisway if the competition becomes mostly about power consumption, then there will be a safe gap between performance of a mobile device and notebook that people will still feel the need for a more powerful notebook/desktop.